Question

Consider the following time-series observations on realized returns on the stocks of company A, and company B, as well as the returns on the Market portfolio I'm respectively. Table 1: Realized percentage returns on alternative assets market portfolio stock A stock B I'm TA TB 5% - 2% -3% 7% 1% 2% -15% -50% -1.5% 12% 1.5% 2% -3% 2.5% 1.7% 5% - 1% 2.5% 6% 2.5% -1.5% --2% 1 -0.5% 5% 1. Compute the mean and the standard deviation of these three assets: {MA, MB, Am] standard deviations of returns {0A, 03, 0m} (Hint: use "stdev" function in Excel) 2. Compute pm, the correlation coefficients between asset m and asset A, and Pm.n the correlation coefficients between asset m and asset B. (Hint: use CORREL function in Excel) 3. Estimate B, and By using the following formula, BAP.A. om OB BB = Pm,B.

Answer 1

Answwrs to question 1, 2, 3

	StockA	Market Portfolio	Stock B		Correlation coeffecient
	Ra	Rm	Rb		p(m,a)				p(m,b)
	-2	5	-3			Column 1	Column 2			Column 1	Column 2
	1	7	2		Column 1	1			Column 1	1
	-50	-15	-1.5		Column 2	0.920277678	1		Column 2	0.368943	1
	12	5	1.5
	-3	2	2.5
	5	1.7	-1		Beta(A)	2.561989042
	6	2.5	2.5		Beta(B)	0.111469798
	-2	-1.5	-0.5
Total	-33	6.7	2.5
Mean	-4.125	0.8375	0.3125
SD	19.2237762	6.905264555	2.086307401

Answers to question 4,5,6

	StockA	Stock B	Market Portfolio			Correlation coefficient
	Ra	Rb	Rm	Rp		P(m,p)
	-2	-3	5	-2.25			Column 1	Column 2
	1	2	7	1.25		Column 1	1
	-50	-1.5	-15	-37.875		Column 2	0.919527	1
	12	1.5	5	9.375
	-3	2.5	2	-1.625
	5	-1	1.7	3.5		Beta (P)	1.949359
	6	2.5	2.5	5.125		B**(P)	1.949359
	-2	-0.5	-1.5	-1.625
Total	-33	2.5	6.7	-24.125
Mean	-4.125	0.3125	0.8375	-3.01563
SD	19.2238	2.0863	6.905264555	14.63887